Fixing LIBOR: some preliminary findings - Treasury Contents

4  The Tucker-Diamond dialogue and the Diamond File Note

The conclusion of the regulatory investigations

68. Paragraph 176 of the FSA Final Notice documents "a telephone conversation between a senior individual at Barclays and the Bank of England during which the external perceptions of Barclays' LIBOR submissions were discussed". The FSA Final Notice went on to say that, following this telephone conversation, which took place on 29 October 2008, an "instruction to reduce [Barclays] LIBOR submissions" was "given by senior management" on the same day. The FSA Final Notice made clear that "no instruction for Barclays to lower its LIBOR submissions was given during this telephone conversation", but went on to state that "as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred". This, the FSA Final Notice, concluded meant "that Barclays Submitters believed mistakenly that they were operating under an instruction from the Bank of England (as conveyed by senior management) to reduce Barclays' LIBOR submissions".[118]

69. The CFTC and Department of Justice investigations also examined the role of the Bank of England in the lowering of Barclays LIBOR submissions in late October 2008. The Department of Justice's description mirrored that of the FSA Final Notice. They explained that "on October 29, 2008, a senior Bank of England official contacted a senior Barclays manager". The Bank of England official "discussed the external perceptions of Barclays's LIBOR submissions and questioned why Barclays's submissions were high compared to other Contributor Panel banks". The Department of Justice concluded that:

    As the substance of the conversation was passed to other Barclays employees, certain Barclays managers formed the understanding that they had been instructed by the Bank of England to lower Barclays's LIBOR submissions, and instructed the Barclays Dollar and Sterling LIBOR submitters to do so - even though that was not the understanding of the senior Barclays individual who had the call with the Bank of England official. Beginning on November 6, 2008, as a result of increased liquidity in the market, Barclays no longer needed to take into account the perceived instruction from the Bank of England.

70. The CFTC outlined how in September and October 2008 "Barclays increasingly felt tremendous external pressures concerning how it was being perceived in the market and media, particularly due to its higher LIBOR submissions relative to the other panel banks. The CFTC went on to say that Barclays "continued to believe that the other panel banks LIBOR submissions were unrealistically low" and that "even though it [Barclays] maintained that its liquidity position was in fact strong, Barclays was increasingly worried about these market and media perceptions". The CFTC report that "at this time, the Bank of England had a conversation with a senior individual in Barclays, in which it raised questions about Barclays liquidity position and its relatively high LIBOR submissions". The outcome the CFTC concluded was that:

    In late October 2008, reacting to this pressure and the discussion with the Bank of England, Barclays believed it needed to lower its LIBOR submissions even further. As a result, a member of senior management conveyed an instruction to the LIBOR submitters, through their supervisor, that Barclays U.S. Dollar and Sterling LIBOR submissions needed to be lowered to be 'within the pack,' meaning Barclays LIBOR submissions were to be made at or around the same rate as the other panel banks.[119]

Who was the senior Bank of England official?

71. There was intense media speculation over the following days as to the identity of the "senior individual at Barclays and the Bank of England" who had participated in this 29 October 2008 telephone conversation. By the weekend of 30 June 2012 the media were reporting that the 29 October 2008 conversation had taken between Mr Bob Diamond, then President of Barclays plc and Chief Executive of Barclays Capital, and Mr Paul Tucker, then Executive Director of Markets, and now Deputy Governor of the Bank of England (financial stability).[120]

72. Subsequently, and ahead of Mr Diamond's appearance before the Treasury Committee, Barclays published a File Note of the 29 October 2008 discussion, written by Mr Diamond following his conversation with Paul Tucker. This provided details of Mr Diamond's recollection of the conversation (see Box A for the full text of the File Note).


From: Diamond, Bob: Barclays Capital

Sent: 10/30/2008 14:19:54

To: Varley, John: Barclays PLC

Cc: del Missier, Jerry: Barclays Capital (NYK)

Subject: File note: Bank of England call


File Note: Call to RED from Paul Tucker, Bank of England

Date: 29th October 2008

Further to our last call, Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing. His response was "you have to pay what you have to pay". I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response "oh, that would be worse".

I explained again our market rate driven policy and that it had recently meant that we appeared in the top quartile and on occasion the top decile of the pricing. Equally I noted that we continued to see others in the market posting rates at levels that were not representative of where they would actually undertake business. This latter point has on occasion pushed us higher than would otherwise appear to be the case. In fact , we are not having to 'pay up' for money at all.

Mr Tucker stated the level of calls he was received from Whitehall were 'senior' and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.

RED [121]

The backdrop to the 29th October 2008 Diamond-Tucker discussion

73. The 29 October 2008 discussion between Mr Diamond and Tucker took place against a rapidly deteriorating outlook for the global financial system. In the United States, Merrill Lynch had sought refuge by selling itself to Bank of America, and the insurance firm AIG had received emergency funding from the US authorities. On 15 September 2008, Lehman Brothers had filed for chapter 11 bankruptcy protection, triggering an intensification of financial instability and the interbank funding markets became even more dysfunctional.

74. The situation in the UK was also critical. On 8 October 2008, the UK Government had announced a large-scale package to stabilise the UK financial system. More specifically, the Government said it was "bringing forward specific and comprehensive measures to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers".[122] These measures were intended to address what the Government described as the three root causes of the current financial crisis: concerns about liquidity, capital and funding:[123]

·  To address concerns about liquidity, at least £200 billion was to be made available to banks under the Bank of England's Special Liquidity Scheme (SLS);[124]

·  To address funding concerns, the Government established a Credit Guarantee Scheme. This made available to participating institutions a government guarantee to refinance maturing debt and was designed to unblock the interbank money market, and

·  To address concerns about solvency, the Government asked the UK banks to increase their 'Tier 1' capital ratios and established the Bank Recapitalisation Fund, which provided support for those banks who wished to strengthen their capital ratios through the Government rather than the private sector.[125]

75. By mid-October 2008, two banks—RBS and HBOS—had been rescued with £37 billion of taxpayer support with the result that the Government now held a 57.9% stake in RBS and a 43% stake in Lloyds Banking Group (which emerged from the merger of Lloyds TSB and HBOS). Barclays at this stage had not made use of taxpayer monies for the purpose of recapitalisation, but it did benefit from other Government support mechanisms during the crisis such as the special liquidity scheme and the credit guarantee scheme. It was looking for a private-sector solution, but rumours were rife that it would also end up having to accept Government support.[126] Both Mr Diamond and Mr Tucker stressed to us that October 2008 was a time of acute financial instability and that their discussion had taken place just weeks after the part-nationalisation of RBS and Lloyds/HBOS.[127]

76. Barclays sent us a supplementary memorandum immediately prior to Mr Diamond's appearance before this Committee. This provided us with some Barclays-specific background context as to the tightening of liquidity conditions in October 2008 and Barclays LIBOR submissions during this period. Barclays told us that "during October 2008, in the wake of the collapse of Lehman Brothers, when liquidity conditions had tightened acutely, Barclays raised its US Dollar LIBOR submissions more significantly than other panel members". Barclays went on to describe how "in the month of October 2008, in particular, Barclays US Dollar LIBOR submissions for the 3 month maturity were the highest or next highest of the panel on every single day of the month and therefore excluded from the calculation of LIBOR". Barclays ended by stating that it:

    did not understand why other banks were consistently posting lower submissions; Barclays firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays.[128]

77. The discussion between Mr Diamond and Mr Tucker, which had taken place at the instigation of Paul Tucker,[129] and the subsequent publication of Mr Diamond's File note of his recollection of their discussion, had fuelled media speculation that either the Bank of England or the "senior" Whitehall figures referred to in the Diamond File note had encouraged or instructed Barclays to lower their LIBOR submissions. This was in large part because the end of the File note stated that:

    [...] while he [Mr Tucker] was certain we [Barclays] did not need advice, that it did not always need to be the case that we [Barclays] appeared as high as we [Barclays] have recently.

The way Mr Diamond worded the last sentence meant that it was capable of being interpreted as an instruction, from either Whitehall or the Bank of England, to Barclays to reduce its LIBOR submissions.

78. However, Paul Tucker, when subsequently questioned on whether Mr Diamond's File note was an accurate reflection of their 29th October 2008 conversation, replied "not completely".[130] Mr Tucker told us that "the last sentence gives the wrong impression".[131] When asked how the File note should have ended in order accurately to reflect their discussion, Mr Tucker replied that:

    It should have said something along the lines of, "Are you ensuring that you, the senior management of Barclays, are following the day-to-day operations of your money market desk, your treasury? Are you ensuring that they don't march you over the cliff inadvertently by giving signals that you need to pay up for funds?"[132]

Who were the senior figures in Whitehall and did they instruct?

79. Mr Diamond appeared uncertain as to the identity of the "senior figures within Whitehall". When asked "what you took to mean by the phrase Whitehall, he replied 'officials in the Government'".[133] Later exchanges appeared to demonstrate that Mr Diamond had no idea who these "senior figures within Whitehall" were:

    Michael Fallon: Can we, Mr Diamond, go back to the file note of your call? You said in answer to the Chairman that you thought the senior figures referred to were—you said at one point—officials in the Government, and then later on you said members of the Government. Which do you believe? Who do you think they were?

    Bob Diamond: I would only be speculating if I told you who I thought they were, and I don't think it's appropriate to speculate. My recollection is Paul didn't mention who he was referring to or I would have put it in the note.

    Michael Fallon: Right. But who do you think he could possibly have been referring to?

    Bob Diamond: I don't want to speculate.

    Michael Fallon: A Department or—

    Bob Diamond: Senior people in the Government.

80. Paul Tucker, when he appeared before us the following week, confirmed that the "senior" Whitehall figures referred to in the File note were not Government Ministers, but civil servants: Sir Jeremy Heywood, Tom Scholar, Sir Nick Macpherson and Jon Cunliffe.[134]

81. Paul Tucker was questioned about the so-called instruction. He denied categorically that any Government Minister or civil servant had asked him to get Barclays to lower their LIBOR submissions:

    Mr McFadden: Can I ask you, did Jeremy Heywood or any other Government official that you mentioned in your opening answer to the Chairman ever encourage you to lean on Barclays or any other bank to lower their LIBOR submissions?

    Paul Tucker: Absolutely not.

    Mr McFadden: Did any Government Minister from the last Government ever encourage you to lean on Barclays or any other bank to lower their LIBOR submissions?

    Paul Tucker: Absolutely not.

    Mr McFadden: Specifically, did Shriti Vadera ever ask you to lean on Barclays or any bank to lower their LIBOR submissions?

    Paul Tucker: Absolutely not. If I may just add one thing there, what is more I don't think that I spoke to Shriti Vadera throughout this whole period at all.

    Mr McFadden: Thank you. Did Ed Balls ever ask you to lean on Barclays or any other bank?

    Paul Tucker: No. No.

    Mr McFadden: Or any other Government Minister?

    Paul Tucker: No.

82. Paul Tucker also denied the charge that he had personally issued an instruction:

    Chair: [...] would you categorically refute the suggestion that this conversation might reasonably have led someone to suppose you were inviting Barclays to join the pack and under-report LIBOR?

Paul Tucker: Absolutely.[135]

The Whitehall-Tucker discussions

83. Mr Tucker went on to explain why he had received these telephone calls, referred to in the File note, from "senior" figures in Whitehall. He said that Whitehall had two key concerns:

    There were two parts to this, which come together I think. Is the package working? If it is, why isn't it working more quickly? Secondly, should we be worried about Barclays? I don't want to say that it was expressed as concretely as this, because I can't remember, to be honest, but there was a sense of, including in the Bank, was the right decision taken in allowing Barclays not to take capital support from the Government?[136]

In other words, Mr Tucker said that the concerns in Whitehall were about the effectiveness of the many emergency measures which had been announced and the strength of Barclays as an institution, not about encouraging Barclays to manipulate its LIBOR submissions. With respect to the second concern, Mr Tucker said the source of this particular concern lay in the fact that "whereas some market participants felt that money-market conditions could ease because funding was being provided by the official sector, Barclays had continued to pay higher rates in the market, as reflected in their LIBOR submissions". Mr Tucker told us that civil servants were asking whether:

    the right decision [had been] taken when Barclays didn't take capital from the Government? If you remember, ... the Government's, the authorities' three-pronged package was announced on 8 October, I believe. On the 13th, when it was announced that RBS and HBOS Lloyds were taking capital from the Government, earlier that day Barclays announced that they would not be taking capital from the Government and would be taking various other measures. There was a degree of concern about that; there was a degree of anxiety about that.[137]

Mr Tucker went on to describe how some other banks "had been taken under the explicit wing of the Government", whilst "HSBC and Abbey National Santander were seen, at that point, to be relatively safe":

    That left Barclays. During that period, in the measure of credit risk indicated by the credit default swap market, Barclays was top. The way this crisis unrolled in more or less every financial centre was, as one domino went, "Who might the next one be?" We were not in the position of thinking Barclays is doomed. Had we thought that we, the Bank, would have given very strong advice to the Government that it was not safe for Barclays not to take capital from the Government, but it was a hard call and there was anxiety.[138]

Barclays and the perceived instruction

84. Barclays, in its supplementary memorandum to this Committee prior to Bob Diamond's appearance before us, attempted to clarify the issue of whether an instruction had been issued and, if so, by whom. It told us that, subsequent to the 29 October 2008 discussion between Messrs Diamond and Tucker:

    Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier.

We questioned Mr Diamond on this point. He was clear that he did not believe he had received an instruction, whether from the Bank of England or Whitehall:

    Chair: [...] The note from Mr Tucker says that he felt your LIBOR returns could be lower, doesn't it?

    Bob Diamond: He felt that our LIBOR rates relative to the other 15 posters—

    Chair: Could be relative[ly] lower. Yes?

    Bob Diamond: Yes.

    Chair: Why then, on page 2 of the [Barclays] note to this Committee yesterday, did you say that you don't believe you received an instruction?

    Bob Diamond: I did not believe it was an instruction.[139]

The Diamond-Tucker discussion

85. Paul Tucker told us that the key message he wished to convey to Mr Diamond was to make "sure that the senior management of Barclays was overseeing the day-to-day money-market operations and treasury operations and funding operations of Barclays so that Barclays' money desk did not inadvertently send distress signals". He went on to explain that:

    In actual paying up for money in terms of what you borrow, you do not need to be at the top of the market all of the time. It is very important not to come across as desperate.[140]

86. Mr Tucker was challenged about the section of the File note which stated that "I [Mr Diamond] asked if he [Paul Tucker] could relay the reality, that not all banks were providing quotes at the levels that represented real transactions". More specifically, Mr Tucker was asked by the Committee whether he had considered the possibility that Mr Diamond was alerting him to the fact that other banks were falsely lowering their LIBOR submissions. Mr Tucker rejected this interpretation of Mr Diamond's comments. Instead he explained that market conditions over this time had worsened and that the markets "had dried up", albeit "not completely". As a result, "for months there had been periods where sometimes it [LIBOR submissions] was based on judgments as to where they [banks] would be able to borrow rather than actual transactions of where they were borrowing". He went on to tell us that the banks were:

    having to make judgments about where they could borrow in the market, if they are not actually borrowing in the market. If they were not doing real transactions, then Bob Diamond was effectively saying, "Look, when they come to do real transactions they are going to be paying the same as us."[141]

87. Mr Diamond told us that he believed Paul Tucker was trying to tell him was that there were "Ministers in Whitehall who are hearing that Barclays is always high. That could lead to the impression that you are not funding yourself." He told us that his first reaction was:

    "John [Varley], you have to get to Whitehall. You have to make sure they know that we are funding fine. It's not wonderfully, it is adequately, but we have an equity issue about to settle in two days. We're raising £6.7 billion of capital when a number of British banks had just taken capital from the Government."

A key point which Mr Diamond appeared to have had in his mind at this time was the potential threat of nationalisation:

    If Whitehall was told, "Barclays is at the highest of LIBOR", without knowing all that I just went through, they might say to themselves, "My goodness, they can't fund. We need to nationalise them," as they had nationalised other British banks.[142]

This may help explain why Mr Diamond, following the discussion with Paul Tucker, then wrote a File note to John Varley, then Barclays Chief Executive and Jerry del Missier, a senior lieutenant of Mr Diamond's. Writing File notes, Mr Diamond told us, was something he did "not [do]frequently" at that stage.[143]

88. John Varley did not give oral evidence in this inquiry. However, he wrote to us on 16 July 2012 to provide an explanation of what action he took upon receiving Mr Diamond's File note:

    On the day I received Mr Diamond's email, I spoke, or left voicemail, with Lord Myners, Sir John Gieve, and Mr Sants to inform them of the successful completion of Barclays capital raising, which alleviated concerns about our capital ratios and funding position. To the best of my recollection, those conversations did not refer to concerns about Barclays LIBOR submissions. I do not recall any subsequent discussions at that time with them or other members of the tripartite authorities specifically referring to concerns about Barclays LIBOR submissions. On 7th November, I attended a meeting with the Chancellor of the Exchequer and other bank executives. There was reference to LIBOR during that meeting, but it related to growth in the economy, and what the banks could do to support that, particularly in the context of the cost of credit to small business.[144]

We subsequently wrote back to Mr Varley requesting further information about any discussions he may have had with Mr Diamond or del Missier about the conversation between Mr Diamond and Mr Tucker or the subsequent File note. He told us:

    As to whether I replied to Mr Diamond's file note or took any consequential action, I emailed Mr Diamond on 3 November 2008 in response to his file note of 30 October 2008 saying: "Bob, We should discuss." I believe this was in anticipation of a working dinner I was due to attend on 3 November with Lord Turner and Mr Sants, to which I referred in my letter to you of 16 July 2012. I do not recall receiving a reply from Mr Diamond or taking any specific action beyond what I described in that letter to you of 16 July.

He went on to tell us that "other than responding to Mr Diamond in the way I describe in paragraph numbered 4 [reproduced above] , I do not recall speaking with him about his conversation with Mr Tucker or his subsequent file note". Mr Varley ended by stating that "to the best of my recollection and belief, I did not discuss Mr Diamond's conversation with Mr Tucker or his file note with Mr del Missier". Similarly, Mr Varley stated that he "did not discuss Mr Diamond's conversation with Mr Tucker or his file note with Mr Agius, or any other senior executive or non-executive director".[145]

The role of Jerry del Missier

89. Following publication of the Diamond File note it emerged that Jerry del Missier, at that time Co-President of Barclays Capital, and copied into the File note along with Mr John Varley, had mistakenly assumed that Mr Diamond had instructed him to lower Barclays LIBOR submissions.

90. When questioned as to how Mr del Missier could have misconstrued the File note and concluded that it was an instruction to lower Barclays LIBOR submissions, Mr Diamond simply replied "Michael, with apologies, I can't put myself in Jerry's shoes".[146] We therefore asked Jerry del Missier how he had misconstrued Mr Diamond's File note:

    Well, Mr Fallon, I know only what I clearly recall from my conversation with Mr Diamond. The investigators that have looked at this thoroughly have concluded that there was a miscommunication and misunderstanding, but I can only recall my recollection—I can only state what my recollection of the conversation is.[147]

91. Mr del Missier revealed that he had acted on the basis of a telephone conversation with Mr Diamond on the 29 October 2008, following Mr Diamond's conversation with Mr Tucker, and not on the basis of the File note.[148] When questioned about his conversation with Mr Diamond, Mr del Missier told us that Mr Diamond told him that:

    he had a conversation with Mr Tucker of the Bank of England, that the Bank of England was getting pressure from Whitehall around Barclays—the health of Barclays—as a result of LIBOR rates, that we should get our LIBOR rates down, and that we should not be outliers.[149]

When questioned further on this topic, Mr del Missier said that:

    What was communicated to me by Mr Diamond was ... about political pressure on the bank, regarding Barclays's health and, as indicated by our LIBOR rates, that we should get our LIBOR rates down, and not be outliers; and there's nothing in the note which is in conflict with that [Diamond-Tucker] conversation.[150]

92. We asked whether Mr Diamond had told Mr del Missier "effectively to invent a submission", but Mr del Missier replied categorically "No, Sir; that is not what Mr Diamond said".[151] When asked whether he believed he was "acting on an instruction from the Bank of England or from other Whitehall sources", Mr del Missier replied "yes".[152] He went on to say that he believed the so-called instruction to have come from Paul Tucker, adding that "Mr Diamond told me that Mr Tucker had given it[the instruction]".[153] He confirmed in response to repeated questioning that he viewed the instruction as coming from the Bank of England rather than the "public authorities" more generally.[154] Mr del Missier was finally asked whether he would have issued the instruction in the absence of "cover from the tripartite". He replied "no".[155]

93. Jerry del Missier told us that he was in "regular communication" with Mr Diamond, albeit "not always daily", and would communicate with him several times a week.[156] However, he went on to tell us that he never discussed the 29 October instruction again with Mr Diamond.[157] When questioned as to why this was the case, Mr del Missier told us that:

    there were many, many big events going on in this period, Mr Chairman. The entire financial system was hanging in the balance, and in the grand scheme of everything that was going on, it didn't seem a significant event, given the number of significant events that were transpiring at that time.[158]

Passing on the perceived instruction

94. Mr del Missier said that he then "passed the instruction ... on to the head of the money markets desk" who he identified as Mr Mark Dearlove.[159] Mr del Missier told us that he "relayed the contents of the conversation that I had with Mr Diamond, and fully expected that the Bank of England's views would be incorporated in the LIBOR submissions".[160] In subsequent questioning Mr del Missier told us that, more specifically:

    I said, "I've spoken to Mr Diamond. He's had a call from Mr Tucker." I alluded to the pressure—the political pressure—around Barclays's health, as demonstrated by our LIBOR rates, and that we should get our rates down and not be an outlier.[161]

When challenged on what exactly he expected to happen, Mr del Missier replied that "given that Barclays was high rates, I would have expected that taking that into account would have resulted in lower submissions".[162] When asked how Mr Dearlove reacted to the instruction, Mr del Missier told us he was unable to "recall the full specific of the conversation".[163] We pressed Mr del Missier further on what Mr Dearlove said in response to the instruction request.

    Andrea Leadsom: But would you expect Mr Dearlove to say, "Then I asked Mr del Missier, 'Are you sure about this? This is not in the rules, at the very least, and this is breaking the law, at the very worst.'"? Would he tell us that that is what he said to you or not?

Jerry del Missier: I don't think that is what he would say.

95. Mr Dearlove then passed on the instruction to the submitter. Mr del Missier said that he then had "a follow-up conversation with the head of the desk, and several of the desk members, and gave them the context of the conversation that I had had with Mr Diamond about the conversation that he had had with Mr Tucker".[164] However, Mr del Missier then told us that he did not check to see what effect his instructions had on Barclay's LIBOR submissions.[165]

96. Mr del Missier was unable to remember Mr Dearlove's reaction to being issued with the instruction, but told us that through the course of the investigation, he learnt that "compliance was alerted of the nature of the request that had come in", adding "but there was no follow-up from compliance"[166] Mr del Missier confirmed that a Mr Stephen Morse, Head of Compliance was the person who was informed by the money market desk of the instruction.[167]

97. The FSA Final Notice noted that a submitter "emailed Manager F and others on 29 October 2008 in relation to this instruction, copying in compliance". The email was sent to Mark Dearlove and Stephen Morse, the head of compliance was copied in. The email, which was subsequently supplied to the Committee by Barclays, shows that the submitter was uncomfortable with what he was being asked to do. The email stated:

    As per the telephonic communication today with Mark Dearlove. I have been requested to reduce the Sterling Libor rates to be more in line with the "Pack".

    As I understand it this is an instruction by either senior management and/or the Bank of England.

    I voiced my views as below but as such will comply with the request and that it will take me a week to comply.

    But it should be noted that this will be breaking the BBA rules with regard to the setting of Sterling Libor rates IE (a reasonably [sic] amount offered in the market in the period concerned.) and as such the breaking of such rules will happen until the instruction demanded by senior management will be rescinded or the BBA rules are changed.[168]

The FSA Final Notice stated that "compliance did not consider appropriate for Barclays' submitters to comply with the instruction". On 3 November, Mr Morse wrote an email in response to the submitters 29 October email, and which he sent to, amongst others, Mr Dearlove. The email stated:

    Thanks for your note. In my view we should continue to quote Sterling Libor rates where we see it - we obviously need to make sure we follow the BBA's rules and avoid potential action by the FX and MM Committee [of the BBA]. I've not been made aware of any suggestion by external sources that we should reduce rates to join the "pack", but I'll take that up with senior management this week [...].[169]

98. Notwithstanding the concerns expressed by Mr Morse in his 3 November 2008 email it is clear that no further action was taken by Group Compliance. The FSA Final Notice concluded:

    Compliance did not speak to Barclays' Submitters. Compliance did not ensure that the Submitters did not follow the instruction. The relevant individual in Compliance thought his email would suffice to "nip it in the bud". In addition, Compliance did not discuss the issue with senior management. An individual in senior management went on to reiterate the instruction at a meeting with Barclays' Submitters on 6 November 2008.[170]

99. The FSA investigation has left a number of important questions unanswered. The first of these is whether "senior" Whitehall figures issued an instruction to Paul Tucker to get Barclays to lower their LIBOR submissions or, as Mr Tucker insists, Whitehall were simply trying to garner information about the health of Barclays, and the success or otherwise of the Government's rescue package, at a time of acute financial instability. Paul Tucker told us that he did not receive an instruction from Whitehall (whether from Government Ministers or officials) to tell Barclays to lower their LIBOR submissions and we have not received any evidence to the contrary. The evidence we received suggests that Whitehall was prompted to contact the Bank of England because of its concerns about whether the October 2008 rescue package for the UK financial system was working, as well as concerns about the financial health of Barclays. This was understandable given the fragility of the UK and international financial system in October 2008.

100. Mr Tucker relayed Whitehall concerns about Barclays to Mr Diamond in a telephone discussion on 29 October 2008. There is no transcript or recording of the conversation between the two men. Nor did Mr Tucker, or his officials, make a contemporaneous note of the discussion. The only record of the discussion is therefore a File note written the following day by Mr Diamond.

101. Mr Tucker contests the accuracy of the final sentence of the 28 October 2008 File note. The final critical sentence reads—"while he [Mr Tucker] was certain we [Barclays] did not need advice, that it did not always need to be the case that we [Barclays] appeared as high as we [Barclays] have recently". It is by no means clear that the final sentence of Mr Diamond's record of the call was an instruction to lower Barclays LIBOR submissions, although it was interpreted in that way by Barclays. Mr Tucker disputes Mr Diamond's recollection of their 29 October 2008 discussion as recorded in the File note and, in particular, objects to the final sentence. Mr Tucker told us that the last sentence "gives the wrong impression" and believes it should have said "Are you ensuring that you, the senior management of Barclays, are following the day-to-day operations of your money market desk, your treasury? Are you ensuring that they don't march you over the cliff inadvertently by giving signals that you need to pay up for funds?" We will never know the details of the discussion between the Mr Tucker and Mr Diamond. What we do know is that Mr Tucker denied ever having issued an instruction to Barclays whilst Mr Diamond denied having received an instruction from Mr Tucker.

102. The File note is of secondary importance as far as the subsequent transmission of the instruction is concerned. This is because Mr del Missier told us that he acted, not on the basis of the File note, but on the basis of the 29 October 2008 discussion he had with Mr Diamond, following the conversation between Mr Diamond and Mr Tucker. Mr del Missier informed us that the File note correctly records the substance of the Tucker-Diamond discussion as relayed to him by Mr Diamond, but not the exact words. There is no File note of the conversation between Mr Diamond and Mr del Missier and no recording was taken of their discussion.

103. It remains possible that the entire Tucker-Diamond dialogue may have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal.

104. Mr Diamond denied that he himself issued an instruction to Mr del Missier. Mr del Missier, on the other hand, believed that he did receive an instruction, but one which emanated from the Bank of England. The FSA Final Notice concluded that Mr del Missier misunderstood what Mr Diamond was communicating to him. However, Mr del Missier in evidence to us was clear that he believed he was implementing an instruction from the Bank of England.

105. From Mr del Missier's evidence it appeared that Mr Dearlove was comfortable with the instruction that was passed to him following his 29 October 2008 conversation with Mr Diamond. There was some resistance from the submitter, who emailed compliance with his concerns. However, he or she ultimately acted on the instruction. There appears to have been, once again, no real 'push-back' from the compliance function when they were informed by Group treasury of the instruction. This lack of 'push back' demonstrates the weakness of the compliance function in Barclays at that time. It may also reflect the fact that Group treasury had been submitting false rates since September 2007 and that, to this end, Mr del Missier's instruction was not a departure from prevailing practice. It is unclear to the Committee why Barclays has attempted to place such weight on the Tucker-Diamond phone call given the pattern of repeated dishonesty in LIBOR submissions in the months running up to this phone call set out in the FSA Final Notice. Barclays did not need a nod, a wink or any signal from the Bank of England to lower artificially their LIBOR submissions. The bank was already well practised in doing this. Mr del Missier appears to have stressed the fact that what he saw as an instruction came from the Bank of England and that this may have muted resistance to it. Mr del Missier's evidence, that he received such an extraordinary instruction from the Bank of England, yet subsequently queried it neither with Mr Diamond nor with those to whom he passed the instruction, is not convincing. He would have known that falsifying LIBOR submissions was not permitted.

106. Mr del Missier has sought to play down the significance of the 29 October 2008 instruction. He stressed that it was of relatively minor significance, which would fit with the pattern of behaviour from Barclays in the months running up to the phone call. Certainly, it appeared sufficiently unimportant to him that he never discussed the matter again with Mr Diamond. Indeed Mr Del Missier apparently did not even check whether his instruction had been acted on. However, Mr Diamond felt that the discussion with Mr Tucker was of sufficient importance to merit the writing of a File note, something Mr Diamond did not ordinarily do.

107. The Committee remains sceptical about the importance of the Tucker-Diamond phone call given the already established pattern of dishonest LIBOR submissions from Barclays set out in the FSA Final Notice. The lack of a record by the Bank of England of the conversation between Mr Tucker and Mr Diamond is of great concern. The fact that Mr Tucker failed to make a contemporaneous note of the conversation is explicable given that the UK was in the midst of the most serious financial crisis in modern times: there was unprecedented pressure on senior Bank of England staff at this time. Nonetheless, the Bank of England should have had adequate procedures in place for at least the making of a File note of such conversations. We recommend that the Bank undertake a review of its note keeping systems, especially those involving senior executives, and publicly report its conclusions.

108. If Mr Tucker, Mr Diamond and Mr del Missier are to be believed, an extraordinary, but conceivably plausible, series of misunderstandings and miscommunications occurred. The evidence that they separately gave describes a combination of circumstances which would excuse all the participants from the charge of deliberate wrongdoing.

118   FSA, Final Notice, 27 June 2012, p 36, para 176 Back

119   P 24 Back

120   'What did Bank of England say to Barclays about Libor?', by Robert Peston, BBC Newsonline, 1 July 2012 Back

121   Barclays, Supplementary information regarding Barclays settlement with the Authorities in respect of their investigations into the submission of various interbank offered rates (AMENDED), 3 July 2012 Back

122   HM Treasury Press notice, Financial support to the banking industry, 8 October 2008 Back

123   HM Treasury, Pre-Budget Report 2008, November 2008, pp54-55 Back

124   The Special Liquidity Scheme was first introduced in April 2008 Back

125   Eight banks participated in the recapitalisation scheme: Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered Back

126   For example British banks set for 40 billion pound rescue: sources, Reuters, 12 October 2008 Back

127   Qq 36, 337 Back

128   Supplementary memorandum from Barclays, 3 July 2012 Back

129   Supplementary memorandum from Barclays, 3 July 2012 Back

130   Q 330 Back

131   Q 332 Back

132   Q 333 Back

133   Q 37 Back

134   Q 335 Back

135   Qq 40, 336 Back

136   Q 338 Back

137   Q 337 Back

138   Q 346 Back

139   Q 38-40 Back

140   Q 358 Back

141   Q 362 Back

142   Q 47 Back

143   Q 27 Back

144   Letter from Mr John Varley to the Chairman of the Treasury Committee, 16 July 2012 Back

145   Letter from Mr John Varley to the Chairman of the Treasury Committee, 2 August 2012 Back

146   Q 87 Back

147   Q 890 Back

148   Qq 823, 878 Back

149   Q 825 Back

150   Q 891 Back

151   Q 829 Back

152   Q 878 Back

153   Q 882 Back

154   Q 888 Back

155   Qq 880-881 Back

156   Qq 903-906 Back

157   Q 839 Back

158   Q 839 Back

159   Q 999 Back

160   Qq 831-832 Back

161   Q 1000 Back

162   Q 834 Back

163   Q 1003 Back

164   Q 863 Back

165   Q 864-868 Back

166   Qq 1005-1006 Back

167   Q 1019 Back

168   Barclays, email from money market desk to Compliance, 29 October 2008, received by Committee 23 July 2012 Back

169   Barclays, email from Compliance to money market desk, 3 November 2008, received by Committee 23 July 2012 Back

170   FSA Final Notice, 27 June 2012, p 37, Para 179 Back

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© Parliamentary copyright 2012
Prepared 18 August 2012